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US remains opposed to FX intervention from Japan – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen has strengthened modestly in the Asian trading session after USD/JPY failed to hold above key resistance at around the 110.40-level.

Key Quotes

“Japanese Finance Minister Aso reportedly raised concerns over recent yen developments with US Treasury Secretary Lew at this weekend’s G7 meeting. He reportedly told him “that one-sided, abrupt, and speculative moves were seen in the FX market recently, and abrupt are undesirable and the stability of currencies is important”. US Treasury Secretary Lew does not appear to have been swayed by the comments. He reiterated that recent yen moves have been orderly and that there is a “pretty high bar to have disorderly conditions”.

The release overnight of the latest trade report from Japan for April will not have helped softened US opposition to intervention to weaken the yen. The report revealed that Japan’s trade surplus widened by more than expected in April rising to a seasonally adjusted JPY426.6 billion which was the widest level since February 2011.

Japan’s trade balance has improved sharply over the last year resulting in the trade deficit narrowing to just JPY200.4 billion in the twelve months to the end of April from JPY8.36 trillion in the previous twelve months. The improvement in the trade balance has been driven mainly by a decline in imports as the price of crude oil has declined sharply rather than stronger export growth. Export performance remains disappointing in light of the still weak yen. The BoJ’s real exports measure has roughly flat lined over the last year.

However, the recent hawkish shift in Fed policy should help to ease some of the upward pressure on the yen in the near-term and subsequently ease concerns amongst Japanese policymakers. If the Fed resumes rate hikes in the coming months, it should make it even less likely that Japan will have to intervene in the currency market allowing it to avoid drawing international criticism.”